Model selection when estimating and predicting consumer demands using international,cross section data

This paper assesses the ability of five structural demand systems to predict demands when estimated with cross sectional data spanning countries with widely varying per capita expenditure levels. Results indicate demand systems with less restrictive income responses are superior to demand systems with more restrictive income effects. Among the least restrictive demand systems considered, An Implicitly, Directly Additive Demand System (AIDADS) and Quadratic Almost Ideal Demand System (QUAIDS) seem roughly tied for best, while the Quadratic Expenditure System (QES) is a close second. Given differences in the characteristics of AIDADS and QUAIDS, it is concluded the former is better suited to instances where income exhibits wide variation and the latter to cases when prices exhibit considerable variation. First Version Received: November 2000/Final Version Received: February 2002 RID="*" ID="*"  The authors acknowledge the insightful comments of two journal referees and Baldev Raj. Bettina Aten kindly provided the data used in this study. Any errors or omissions remain the responsibility of the authors. Partial financial support of the United States Department of Agriculture – National Research Initiative Grant #97-35400-4752 and the Purdue Research Foundation is gratefully acknowledged. An expanded version of this paper is available from the authors upon request. RID="**" ID="**"  Contact author     

The cross section of international government bond returns

Volatility risk, credit risk, value effect, and momentum are major return drivers in the fixed-income universe. This study offers a four-factor pricing model for international government bonds. The model thoroughly explains the variation of government bond returns and covers a range of more than 60 cross-sectional return patterns in government bond markets, verifying its usefulness for asset pricing. The research was conducted within a sample of bonds from 25 developed and emerging markets for the years 1992 to 2016.     

Grain imports and food security in an unstable international market

The paper explores a decision theoretic approach to deriving excess demand functions for grain for food deficit foreign-exchange constrained developing countries. The form of excess demand functions derived is consistent with empirically observed ones. Different strategies to improve on the country's food security are investigated using the expected value of a criterion incorporating foreign exchange and the cost of not satisfying domestic requirements. The results indicate that, besides a drive toward self-sufficiency, by reducing variability of grain requirements with the help, for example, of domestic buffer stocks and by improving the domestic crop information system, a country can go a long way toward improving its international food security position.     

Social security and demographic trends: Theory and evidence from the international experience

The worldwide problem with pay-as-you-go, defined-benefits social security systems is not just financial. Through a dynamic, overlapping-generations model where forming a family and bearing and educating children are choice variables, we show that social security taxes and benefits generate incentives to reduce both family formation and fertility, and that these effects cannot be fully neutralized by counteracting inter-temporal or intergenerational transfers within families. We implement the model using calibrated simulations as well as panel data from 57 countries over 32 years. We find that PAYG tax measures account for a non-trivial part of the downward trends in family formation and fertility worldwide, especially in OECD countries.     

Network externalities in consumer spending on lottery games: evidence from Spain

We use data from two nationally representative Spanish surveys in 2005 and 2006 to investigate spending on lottery games. Estimates from Tobit and double hurdle models of participation in lottery markets and spending on lottery tickets find that frequent participation in one game is not associated with an increased or decreased probability of participating in other games, but is associated with increased spending on other games. Consumer spending on different lottery games exhibits inter-related consumption decisions. Also, the assumptions underlying the double hurdle model, but not the Tobit model, better describe consumer spending on lottery tickets in Spain.     

From Maputo to Malabo: public agricultural spending and food security in Africa

Africa is the world’s biggest battleground in the fight against hunger. African governments and the international development community have increasingly focused on finding ways and means to end hunger and ensure the right and access to food for the continent’s burgeoning population. Public spending on agriculture is one such measure. This study examines the role government spending on agriculture has played in enhancing the state of Africa’s food security over the past 25 years. We examine the existing relationship between the two, whether this relationship varies over time and space, and whether it depends on the amount spent. We explore various aspects of food security and check whether spending on research and development follows the same patterns as the overall public agricultural spending. We find some evidence of significant beneficial effects of public agricultural spending on food security but only for the countries which allocate greater proportions of their budgets to agriculture. Spending on agricultural research and development also shows a positive impact on Africa’s food security. There also exists some evidence supporting the temporal effects of public spending. We consider that the Maputo Declaration commitment to allocate at least 10% of public spending to agriculture pertinent.     

Social welfare and the unrepresentative representative consumer

If, for all prices, income distribution is optimal for a planner with a social welfare function, then aggregate demand is the same as that of a single “representative consumer” whose preferences over aggregate consumption are the same as the planner's. This paper shows that the converse is false. Aggregate demand may be the demand function of a representative consumer although the income distribution is not optimal for any social welfare function. The representative consumer may be Pareto inconsistent, preferring situation A to B when all the actual consumers prefer B to A. We give conditions under which existence of a representative consumer implies that the income distribution satisfies first order conditions for optimality. Satisfying the first order optimality conditions for an additively separable social welfare function is essentially equivalent to aggregate demand for every pair of consumers having a symmetric Slutsky matrix.     

Social security and risk sharing

In this paper we identify conditions under which the introduction of a pay-as-you-go social security system is ex ante Pareto-improving in a stochastic OLG economy with capital accumulation and land. We argue that these conditions are consistent with realistic specifications of the parameters of the economy. In our model financial markets are complete and competitive equilibria interim Pareto efficient. Therefore, a welfare improvement can only be obtained if agents? welfare is evaluated ex ante, and arises from an improvement in intergenerational risk sharing. We also examine the optimal size of a given social security system as well as its optimal reform.     

Social security and unsecured debt

In this paper, we use a calibrated life-cycle model to explore quantitatively ways of reducing the burden of social security in a world populated by both optimizing and rule-of-thumb consumers. Social security contributions force young households with upward-sloping income profiles to save a sizeable portion of their income for retirement, when their optimal consumption plan would likely have them either saving little or borrowing. We first use household data to document that young households have accumulated social security contributions that are large relative to debt holdings. Then, using a calibrated life-cycle model, we show that both allowing households to use social security wealth to pay off their debt and exempting young households from social security contributions (but in both cases requiring higher contributions later) mitigate many of the inefficiencies of social security from the perspective of life-cycle financial planning. Specifically, in our preferred experiment, which exempts households whose heads are under 30 from making social security contributions, we find that certainty-equivalent consumption increases by 3.4% for optimizing households and by 3.3% for rule-of-thumb households.     

Social security and economic integration

This letter analyzes the impact of economic integration on capital accumulation and capital flows when countries differ in their social security systems. Funding and early retirement both foster capital accumulation relative to pay-as-you-go pensions with flexible retirement. When economies integrate, both imply capital outflow possibly resulting in utility losses.